How does a corridor deductible work?

Most people who have health or auto insurance are familiar with the idea of a deductible. But not everyone realizes there are different kinds of deductible (see An Overview of Insurance Deductibles to learn more).

In general, a deductible is the amount you have to pay out of pocket before your insurance company will pay for your claim. Its purpose is to lower the cost of insurance by reducing the number of claims an insured can make. This naturally reduces the amount of money insurance companies pay out in claims and decreases administration costs related to processing and investigating claims.

For example, if the deductible on your car insurance is $500 and you get into a small fender bender that causes $200 in damage to your car, you wouldn't bother filing a claim with your insurance company. It wouldn't make any financial sense to pay a $500 deductible to get a $200 claim covered. So, the higher your deductible, the fewer claims you will make and the cheaper your insurance premiums will be.

"Corridor deductible" is a much less common term because it typically only applies to health insurance policies. In recent years, however, it has migrated to property and casualty insurance, since underwriters are looking for more creative ways to profitably insure large accounts. As a result, this term is becoming more and more prevalent.

Health insurance policies typically have two levels of deductibles: a regular, "traditional" deductible and a corridor deductible. To access the first level of coverage on a health insurance policy, the insured pays a regular deductible. But once the full basic coverage limits stipulated in the policy have been used up, the insured then has to pay a second deductible (the corridor deductible) before they can get further coverage for major medical expenses. This corridor deductible is usually much larger than your standard deductible.

It's worth noting that after paying the corridor deductible and accessing this second level of coverage, the cost of any further medical expenses are not covered in full. Instead, they are typically shared between the insured and the insurer. For example, an insurer might only pay for 80% of any further expenses while the insured is responsible for paying the remaining 20%.

In short, the corridor deductible is a second deductible that must be paid before additional coverage can be unlocked. It essentially functions as a corridor separating the primary coverage of the policy from the further coverage that can be accessed once the primary coverage is exhausted.